PwC highlights the top five financial reporting reminders as we head into the quarterly reporting cycle. These reminders include disclosure related to GAAP change, recent tax reform, financial reporting requirements related to capital raising activity and interim-specific disclosures.
Hi I’m Doug Smith, a Director in PwC's National Office.
Today, I'll be providing my Top Five reminders as we head into the interim reporting period.
Number one, when adopting a new standard, such as the new revenue standard, companies are required to comply with all annual disclosure requirements in the quarterly period of adoption.
These disclosures must be included in each of the company’s quarterly Form 10-Q filings until the next annual financial statements are filed.
My second reminder relates to certain interim disclosure requirements that mirror those reported in an annual filing on Form 10-K.
Because each interim period is an integral part of the annual period, interim financial statements are generally prepared based on the expectation that users will read the interim financial statements in conjunction with the annual financial statements. In general, interim financial information is only expected to provide an update from the prior year-end.
However, there are certain recurring disclosures, such as commitments and contingencies, or the disclosure of non-recurring discrete interim events, such as entering into a new debt arrangement, where the annual and interim requirements are the same.
Moving on to my third reminder. If a company has reflected items such as:
In a quarterly filing subsequent to its most recent 10K, the previously-filed annual financial statements may need to be recast. This would be to give effect to such retrospective changes prior to filing a registration statement with the SEC if such change was material.
For instance, assume a company changes its reportable segments in the first quarter and files its 10-Q on that basis. After the 10-Q is on file, the company decides to file a Form S-3 to register the future sale of securities.
The instructions to Form S-3 require a company to update its previously issued annual financial statements to give retrospective treatment to the segment change, if material.
My fourth reminder relates to disclosure considerations specific to interim financial statements filed with the SEC. Where applicable, companies should disclose items such as dividends per share or summarized income statement data related to significant equity-method investments in their quarterly reports.
Finally, number 5 on the list relates to trends or uncertainties occurring in an interim period that could trigger disclosures in a 10Q filing. For instance, recent tax reform in the US could have an impact on interim reporting, specifically with regard to a more granular description of items impacting a company's effective tax rate in the quarterly financial statements. Companies should also consider the need for robust disclosure of the finalized and provisional amounts of tax reform reflected in the interim financial statements, as well as items not yet recorded, during the one-year measurement period since enactment. Further, the potential go-forward impacts of the change in regulation can impact a company’s earnings, financial condition and liquidity discussed in the MD&A.
Additionally, disclosures are required when a new accounting standard has been issued but is not yet effective. Companies should provide meaningful disclosure based on known information at the time they are preparing their interim financial statements.
These disclosures should be updated throughout the year as more information becomes known. As we near the adoption date for new standards, such as leases and the measurement of credit losses, such disclosures should remain top-of-mind for interim reporting.
So, those are my Top Five Interim reminders. Companies should be mindful of these items as they enter the interim reporting cycle to ensure complete disclosures within their 10Q filings and prepare for potential capital markets activity in the future. For more information refer to PwC's Financial Statement Presentation guide, available on CFOdirect.com.